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THE SIGNIFICANCE OF REAL ESTATE IN EUROPEAN PENSION FUNDS. GRAEME NEWELL University of Western Sydney. PENSION FUNDS. Increased importance Over $30 trillion in assets Real estate: 5-10% in portfolio European pension funds - changes- moving forward. OBJECTIVES. - PowerPoint PPT Presentation
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THE SIGNIFICANCE OF REAL ESTATE IN
EUROPEAN PENSION FUNDS
GRAEME NEWELL
University of Western Sydney
PENSION FUNDS
• Increased importance• Over $30 trillion in assets• Real estate: 5-10% in portfolio• European pension funds
- changes - moving forward
OBJECTIVES
• Pension funds in Europe: changes• Leading pension funds in Europe re: real
estate• Survey European pension funds re: real
estate strategy• Identify strategies re: levels of real estate
moving forward
PENSION FUNDS IN EUROPE
• LEADING PLAYERS- global - local - 2 @ top 3
- 4 @ top 20
- 11 @ top 50
- 30 @ top 100
- 94 @ top 300
• ASSET ALLOCATIONS- real estate - fixed income - shares
- future liabilities
Leading pension funds in Europe
Pension fund Country Global rankTotal assets
(2011)Government Pension Fund Global
Norway 2 $551B
APG Netherlands 3 $319B
PPGM Netherlands 13 $133B
ATP Denmark 17 $124B
OTHER EUROPEAN PENSION FUNDS
• ALECTA: #34 @ $74B• BVK: #38 @ $65B• British Telecom: #43 @ $58B• SHELL: #44 @ $56B• Universities Superannuation: #50 @ $50B• FRR: #54 @ $49B• VARMA: #64 @ $44B• Royal Mail: #66 @ $43B• Bundes Pensionskasse: #83 @ $36B• British Airways: #128 @ $24B• Zilverfond: #133 @ $24B• Nestle: #151 @ $21B• Daimler: #252 @ $13B• Rolls-Royce: #259 @12B
PENSION FUND ASSETS: THRESHOLDS
• Top 5: $264B• Top 10: $145B• Top 25: $88B• Top 50: $50B• Top 100: $31B• Top 150: $21B
DRIVERS OF PENSION FUND CHANGES IN EUROPE
• DEMOGRAPHICS
• COSTS AND DEFICIENCIES
• FUTURE LIABILITIES
• CHANGES
Demographic factors in Europe: 2005-2050
Country
Old-age dependency ratio Pension sustainability
index2005 2050
UK 24% 45% #33
Germany 30% 56% #26
Netherlands 21% 39% #40
France 25% 48% #19
Denmark 23% 40% #42
Switzerland 24% 39% #36Spain 24% 67% #6
Demographic factors in Europe: 2005-2050
Country
Old-age dependency ratio Pension sustainability
index2005 2050
Italy 30% 66% #9
Norway 22% 41% #39
Sweden 26% 41% #43
Finland 25% 47% #37
Ireland 17% 45% #16
Austria 25% 53% #24Belgium 26% 48% #18
PENSION SUSTAINABILITY INDEX
#1: Greece #7: Turkey #8: Romania
#10: Slovak Rep. #11: Cyprus #12: Malta
#13: Hungary #14: Slovenia #15: Portugal
#20: Luxembourg #21: Bulgaria #23: Lithuania
#25: Poland #27: Russia #29: Czech Rep.
#30: Croatia #32: Estonia #34: Latvia
MERCER GLOBAL PENSION INDEX
#6: France #7: Germany #9:
Netherlands
#11: Sweden #12: Switzerland #13: UK
#1: Australia #3: Canada #8: Japan
#10: Singapore #14: USA
REAL ESTATE IN PENSION FUNDS
DATA SOURCES
• I&P RE “Investor Survey”• P&I/Towers Watson World 300 Pension Funds• Allianz• PruPIM• OECD• Annual reports from websites of various pension
funds• EPRA• Pension fund survey: Newell (2012)
REAL ESTATE IN EUROPEAN PENSION FUNDS
• Top 100 pension funds @ Europe re: real estate $
• Total AUM = €1.7 trillion• Real estate AUM = €152 billion• Real estate % = 9.1%• Real estate median AUM = €900M• Real estate average AUM = €1.5B
REAL ESTATE IN EUROPEAN PENSION FUNDS
• Country profile (#)
* UK = 25 * Netherlands = 16 *Denmark =
12
* Switzerland = 9 * Germany = 8 * Sweden = 7
* Belgium = 4 * Finland = 3 * Norway = 2
* Ireland = 2 * France = 2 * Portugal = 2
* Italy = 1
REAL ESTATE IN EUROPEAN PENSION FUNDS
• Country profile (RE$)
* UK @ 17% * Netherlands @ 36% *Denmark @ 8%
* Switzerland @ 10% * Germany @ 10% * Sweden @ 10%
* Belgium @ 1% * Finland @ 2% * Norway @ 1%
* Ireland @ <1% * France @ 1% * Portugal @ 1%
* Italy @ 2%
REAL ESTATE THRESHOLDS
• Top 5 = €5.3B• Top 10 = €3.6B• Top 20 = €1.9B• Top 50 = €0.9B• # > €10B = 2%• # > €2B = 15%• # > €1B = 45%
MAJOR REAL ESTATE PLAYERS (€)
MAJOR REAL ESTATE PLAYERS (€)
MAJOR REAL ESTATE PLAYERS (€)
• # 1: APG @ Netherlands* €21.8B * R.E. % = 9.2%
• # 2: PGGM @ Netherlands* €12.9B * R.E. % = 12.0%
• # 3: BVK @ Germany* €6.4B * R.E. % = 11.4%
• # 4: BPF Bouw @ Netherlands* €5.6B * R.E. % = 19.4%
CONTRIBUTIONS TO TOTAL REAL ESTATE EXPOSURE IN TOP 100
• Top 2: 22.9%• Top 5: 34.3%• Top 10: 47.9%• Top 25: 68.9%• Top 50: 88.3%• Top 75: 97.6%
MAJOR REAL ESTATE PLAYERS (€): NETHERLANDS
• APG: €21.8B @ 9.2% @ #1• PGGM: €12.9B @ 12.0% @ #2• BPF Bouw: €5.6B @ 19.4% @ #4• Shell: €1.4B @ 3.8% @ #29• Stichting Spoorwegpensioenfonds: €1.4B @11.9%
@ #30
Plus #44, #53, #59, #61, #66, #68, #71, #73, #81, #94
MAJOR REAL ESTATE PLAYERS (€): UK
• BT: €4.4B @ 10.5% @ #7• Universities Superannuation: €3.1B @ 8.5% @ #11• Railway Pension Scheme: €1.9B @ 9.0% @ #18• BP: €1.8B @ 4.5% @ # 22• Royal Mail: €1.8B @ 4.5% @ #23• British Airways: €1.3B @ 7.0% @ #33
Plus #41, #43, #46, #47, #48, #50, #55, #69, #75, #77, #78, #79, #84, #85, #86, #88, #91, #97
MAJOR REAL ESTATE PLAYERS (€): GERMANY•BVK: €6.4B @ 11.4% @ #3•AW-L: €1.9B @ 18.0% @ #19•Siemens: €1.5B @ 7.0% @ #26
Plus #35, #37, #44, #60, #80
MAJOR REAL ESTATE PLAYERS (€): DENMARK•ATP: €2.9B @ 6.2% @ #12•PFA Pension: €2.0B @ 5.2% @ #16•PKA: €1.8B @ 8.9% @ #21
Plus #32, #40, #52, #56, #65, #70, #76, #91, #98
MAJOR REAL ESTATE PLAYERS (€): SWEDEN •AMF: €4.8B @ 11.8% @ #6•Alecta: €3.8B @ 7.1% @ #9•AP3: €1.9B @7.7% @ #19•AP2: €1.3B @5.0% @ #31
Plus #49, #58, #62
MAJOR REAL ESTATE PLAYERS (€): SWITZERLAND•Migros-Pensionskasse: €4.0B @ 29.3% @ #8•UBS: €2.7B @ 13.0% @ #13•Publica: €1.7B @ 6.8% @ #24•CPV/CAP: €1.4B @ 25.5% @ #27
Plus #34, #38, #39, #72, #74
FINLAND• Keva: €2.4B @ 7.9% @ #15
Plus #42, #54
BELGIUM• GDF Suez: €1.5B @ 2.5% @ #25
FRANCE• Air France-KLM: €1.4B @ 10.0% @ #28
ITALY• Fondazione Enasarco: €2.5B @ 41.0% @ #14
NORWAY• GPF-Global: €1.2B @ 0.3% @ #35
AVERAGE LEVEL OF REAL ESTATE: %
• Average % = 9.1%
• Top 5 @ 12.1%• Top 10 @ 13.3%• Top 25 @ 11.3%• Top 26 – 50 @ 8.5%• Top 51 – 75 @ 10.4%• Top 76 – 100 @ 6.0%
AVERAGE LEVEL OF REAL ESTATE: %
• Average % = 9.1%
• UK = 6.9% • Netherlands = 8.5%
• Denmark = 8.2% • Germany = 9.9%
• Switzerland = 16.7% • Sweden = 7.4%
• Belgium = 5.4% • Finland = 11.7%
• France = 10.5% • Norway = 7.2%
MAX LEVEL OF REAL ESTATE: %
• #1: Fondazione Enasarco: 41% @ Italy (#14)• #2: CGD Pensoes-SGFP: 36% @ Portugal (#57)• #3: Schindler Pensionskasse: 30% @
Switzerland (#74)• #4: Migros-Pensionskasse: 29% @ Switzerland
(#8)• #5: CPV/CAP: 26% @ Switzerland (#27)• #6: BPF Bouw: 19% @ Netherlands (#4)• #7: AW-L: 18% @ Germany (#19)
MAX LEVEL OF REAL ESTATE: %
• Italy: 41% (FE @ #14)• Portugal: 36% (CGD @ #57)• Switzerland: 30% (Schindler @ #74)• Netherlands: 19% (BPF Bouw @ #4)• Germany: 18% (AW-L @ #19)• Denmark: 16% (ISP @ #76)• Finland: 15% (Etera @ #54)• Norway: 14% (Oslo P. @ #51)• UK: 11% (BBC @ #41)• France: 11% (UMR Corem @ #63)• Belgium: 9% (KBC @ #91)
EUROPEAN PENSION FUND SURVEY
• REAL ESTATE IN PENSION FUNDS IN EUROPE
REAL ESTATE ISSUES
• BENEFITS
• ALLOCATION CRITERIA
• VEHICLES
• LISTED VERSUS DIRECT
• CHALLENGES
• “OVERALL” VIEW ON REAL ESTATE
• RISKS: SOLVENCY II
ENABLING STRATEGIES
• STRATEGIES ✓ ✓
- fund size - real estate experience
• REAL ESTATE VEHICLES ✓
- separate accounts - club deals - JVs
• REAL ESTATE RISK MANAGEMENT ✓
• REAL ESTATE INFORMATION ✓
• PROACTIVE ROLE BY REAL ESTATE INDUSTRY ✓
• AWARENESS OF RISK FACTORS
OTHER ISSUES
• REITs• International diversification• Alignment of interest• Impact of DC schemes• Liquidity• Role of alternative assets
REAL ESTATE IMPLICATIONS
• CONTINUED ACCEPTANCE AND IMPORTANCE OF REAL ESTATE IN EUROPEAN PENSION FUNDS✓✓✓
• INCREASED UNDERSTANDING OF REAL ESTATE AS AN ASSET CLASS FOR EUROPEAN PENSION FUNDS✓✓✓
• LEADERS @ EUROPE• RISKS: SOLVENCY II• OPPORTUNITIES FOR REAL ESTATE INDUSTRY IN
EUROPE